In New Zealand tax, a tax resident is taxable on the worldwide income where a non-resident is taxable only on the New Zealand income. For a Kiwi expat, it is very important to make sure your tax residency is non-resident after your departure, especially if you are going to a country that New Zealand has not yet signed a Double Tax Agreement (DTA). Failure to get your tax residency correctly may cause all your overseas income and salaries being taxed in New Zealand, even if it has been taxed in the foreign country.

The majority of expats think that they are a non-resident after their departure, which is not always the case. Let’s consider the New Zealand definition of a tax resident:

An individual is a New Zealand tax resident if they:

• Are personally present in NZ for more than 183 days in total in a 12-month period (section YD 1(3) of Income Tax Act 2007), or
• Have a permanent place of abode in New Zealand, even if they also have a permanent place of abode elsewhere (section YD 1(2)).
• Are New Zealand Government servants (section YD 1(7)).

A Kiwi expat working outside NZ is very unlikely to meet the definition under YD 1(3) and assume he is not a government servant under YD 1(7). The only problem is YD 1(2).

The definition of “permanent place of abode” involves many case laws. There are some material factors that will be considered when assessing whether a Kiwi expat has a permanent place of abode in New Zealand:

• The nature and use of the dwelling and the person’s connection with the dwelling in NZ;
• Person’s intentions of returning to NZ to live;
• Strength of family & social ties in NZ;
• Economic ties, business interest & employment in NZ;
• Personal asset & property in NZ;
• Frequency & the length of presences in or absences from NZ

Here is a simple example:

Mr. A is a Kiwi expat working overseas under a permanent employment. He owns a property in NZ and occupied by his wife and children. He spent all his holidays traveling back to New Zealand and stayed with his family. In this case, it is very likely that Mr. A satisfies the definition of tax resident under YD 1(2) as he has a family home and very strong family ties in New Zealand. The fact that Mr. A has a permanent employment and a place of abode outside NZ will NOT affect his NZ tax residency under YD 1(2).

Please note that no single factor is conclusive. ALL factors and facts will be considered carefully. The Double Tax Agreement (DTA) also has an important role when it comes to duel tax residency and double taxation because it has a tie-breaking test which can assign the residency to a specific country.

If you are going to become an expat soon, you need to get tax advises ASAP. Often the expats without proper tax planning before departure discover their errors too late and troubles are inevitable. Please feel free to contact us for assistance.